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Treasury closes ‘aggressive’ tax avoidance schemes

Unnamed bank will be forced to pay more than £500m in tax after Treasury rushes through legislation

The Treasury has rushed in legislation to close down two “aggressive” tax avoidance schemes in an action that will force an unnamed bank to pay more than £500m in tax.

One scheme allows the bank to avoid paying corporation tax on profit it makes from buying back its own debt. The second scheme involves authorised investment funds where the bank aims to convert non-taxable income into an amount carrying a repayable tax credit to secure a repayment from the exchequer even though tax has not been paid.

Reuters calculated that the move could cost a bank such as Barclays about £120m, as it made more than £450m when it bought back bonds. Barclays is not alone in having bought back debt, and banks such as Lloyds Banking Group and Santander have bought back debt. Barclays, along with other banks, refused to comment.

In a separate development, HSBC said it could be hit with a potential tax bill of up to .9bn (£3bn) if it loses an ongoing dispute with HM Revenue and Customs over the way it structures its business.

Announced by exchequer secretary David Gauke, the Treasury said its legislative crackdown was a “bold step not previously taken” to act retrospectively to prevent the use of the first scheme regarding the buy-back of debt.

Treasury sources indicated that up to £2bn of tax revenue might have been forgone across the industry as a result of these schemes. The Treasury highlighted that the transactions were not in keeping with the code of conduct on tax signed in 2010 by 200 banks in total to behave within the spirit of the law on tax. Only 15 banks have been identified as having signed the code.

Lord Oakeshott, the Liberal Democrat peer, said the refusal to name the bank “made a mockery” of the code.

Separately, HSBC disclosed in its annual report that it was involved in an unrelated dispute with the government over the way it pays tax on dividends from its Asian operations. The dispute focuses on a decision by HSBC to hold shares in its Asian and some European subsidiaries through a Dutch company. It believes it should not pay UK tax on dividends it receives. However, HMRC argues that the bank, through its controlled foreign company rules, should pay tax in the UK, as rates in the Netherlands are lower.

The dispute covers the period from 2002 to 2009. “In the event of an adverse outcome from our ongoing discussions with HMRC on the CFC and other open tax issues, the tax payable and financial impact could be as high as .9bn, plus related interest expense,” HSBC said. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds